EXAMINATION : FOUNDATION LEVEL

SUBJECT : BUSINESS ECONOMICS

CODE : A6

EXAMINATION DATE : WEDNESDAY, 3RD MAY, 2023

TIME ALLOWED : THREE HOURS (2:00 P.M. – 5:00 P.M.)

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GENERAL INSTRUCTIONS

1. There are FOUR questions in this paper.

2. Answer ALL questions.

3. Marks are shown at the end of each question.

4. Presentation, clarity of expression, logic of arguments and the use of lucid English will
be taken into account in the assessment of candidates’ answers.

5. Graph papers will be provided when needed

6. This question paper comprises 5 printed pages.

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QUESTION 1

(b) For each of the questions given below, choose the most correct answer among the four
given alternatives. Indicate your answer by writing the appropriate letter A, B, C or D
in your answer booklet:

(i) All of the following are examples of opportunity cost, except:

E. leisure time sacrificed to study for an exam.
F. tuition fees paid to a university.
G. income which could have been earned by college students had he or she
worked full time instead of attending college.
H. building which could have been built with the construction materials and
labour used to build a new university library.

(ii) A free good is not scarce because:

A. individuals can have all they desire at zero price.
B. price ratios the good so that all individuals willing to pay the market
price can buy the good and it is, therefore, not scarce.
C. human desires for the good exceed the amounts available at a zero-
money price.
D. it is unabundant natural resource.

(iii) All of the following statements about price floors are true, except:
A. there will be a surplus of a commodity when a price floor is set about the
equilibrium price.
B. the government may have to set up a system of storage to handle the
excess supply when a price floor is set above the equilibrium price.
C. if the price floor is set below the equilibrium price, the intervention will
have no effect on the market.
D. if the price floor is set below the equilibrium price, the price must be
reduced.

(iv) Demand is said to be inelastic when:

I. the percentage change in quantity demanded is greater than the
percentage change in price of a good.
J. in a liner demand curve, quantity demanded is close to zero (given the
price) so that the percentage change in quantity demanded will be very
high.
K. the percentage change in price exceeds the percentage change in quantity
demanded of a good.
L. a relatively small change in price results in a relatively big change in
quantity demanded.

(v) If the elasticity of demand for a commodity is estimated to be 1.5, then a

decrease in price from $2.10 to $1.90 would be expected to increase daily sales
by:

E. 50%
F. 1.5%
G. 5%
H. 15%

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 (vi) If total utility is increasing, marginal utility:
E. must be increasing.
F. must be decreasing.
G. may either be increasing or decreasing, although it must be greater than
zero.
H. must be increasing at an increasing rate.

(vii) Which of the following would most likely represent an imported or implicit cost
for a firm?
A. Wages for current employees.
B. Interest that could have been received on money currently invested in
inventory.
C. Dividends paid to shareholders of the firm’s stock.
D. Taxes paid to the local government.
(viii) If average fixed cost is declining, then:
A. Marginal Cost (MC) must be declining.
B. Average Total Cost (ATC) is declining.
C. Average Variable Cost (AVC) must be declining
D. it is impossible to determine what is happening to MC, AVC, or ATC
without more information.

(ix) In what circumstances is an economy said to be in recession?

A. If real GDP falls in one quarter compared with the quarter before.
B. If real GDP falls for two consecutive quarters.
C. If real GDP falls in one year compared with the year before.
D. If real GDP falls for two consecutive years.

(x) Which of the following factors might cause a country’s consumption function to
shift upwards?
A. A fall in share prices.
B. A fall in interest rates.
C. Expectations that the economy will soon go into a recession.
D. Households deciding to be thriftier.
(20 marks)

(b) Given the following items, you are required to pair each item from LIST A with a
statement from LIST B appropriately. In pairing the items with statements, write a
Roman number from LIST A against the corresponding letter from LIST B in your
answer booklet:
LIST A
i. Deficit
ii. Positive statement
iii. Free market economy
iv. Development expenditure
v. Tax evasion
LIST B
A. The receipts of the government are less than its expenditure.
B. The receipts of government are more than its expenditure
C. A statement that is based on opinion.
D. A statement that is based on fact.
E. The government plays little role in economic activity.
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 F. The government plays big role in economic activity.
G. Payments for capital assets.
H. Payments other than for capital assets.
I. Illegal manipulation of one’s affairs in order to reduce the taxes due.
J. Legal manipulation of one’s affairs in order to reduce the taxes due.
(10 marks)

(c) For each of the following statements, state whether the statement is true or false.
Indicate your answer by writing “TRUE” for the correct statement and “FALSE” for
the incorrect statement in your answer booklet:
(i) Disposable income is minus taxes plus transfer payments.

(ii) Goods and services are scarce because resources used to produce them are
scarce.

(iii) The most important role of money is to serve as a store of value.

(iv) The marginal propensity to consume is the change in consumption expenditure

divided by the percentage change in income.

(v) The rate of interest is the opportunity cost of holding money.

(10 marks)
(Total: 40 marks)

QUESTION 2

(a) Discuss any five (5) characteristics of expansion phase in business cycle. (5 marks)

(b) Explain any six (6) gains that Tanzania may generate from international trade.
(9 marks)

(c) In four (4) points, distinguish between monopoly and perfect competition market
structures. (6 marks)

(Total: 20 marks)

QUESTION 3

(a) Given that a firm manufactures a product that it sells for TZS.10,000 per unit. The firm
sells 60,000 units per week and it costs the firm TZS.8,000 to produce a unit.

REQUIRED:

(i) Calculate the total revenue. (2 marks)

(ii) With the given sales, what is the profit level? (2 marks)

(b) Define demand and explain any four (4) factors affecting demand of a commodity.
(7 marks)
(c) Explain any six (6) sources of government revenue in Tanzania. (9 marks)
(Total: 20 marks)

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QUESTION 4

(a) Explain two fundamental factors that influence workers’ supply of labour.
(8 marks)

(b) Describe the five (5) major factors favouring collusion in oligopoly markets.
(8 marks)

(c) With examples, discuss the conditions for price discrimination in the monopoly market.
(4 marks)
(Total: 20 marks)

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